The Ministry of Corporate Affairs (MCA) will start investigation into alleged mismanagement at Fortis Healthcare in the midst of the takeover battle for the company, but it is not considering packing off the board and filling it with its nominees.
Meanwhile, three promoter-nominated directors — Harpal Singh, Tejinder Singh Shergill and Sabina Vaisoha — quit the company’s board a day ahead of the extraordinary general meeting (EGM) on May 22. Only Brian Tempest, also promoter-nominated, remains on the board.
Harpal Singh wrote in his resignation letter: “Despite delivering a good outcome for the company and its shareholders there still persist some less informed attempts to steer the board and the company into a situation that could be perilous for the company’s future.”
Besides the four, the Fortis board comprises four additional independent directors, three of whom have been nominated by shareholders. They are Suvalaxmi Chakraborty, Indrajit Banerjee and Ravi Rajagopal, and shareholders will vote on their appointment as board members on Tuesday.
Key bidders for the group want the board to be strengthened and a reversal of its earlier decision to select the Hero Enterprise-Burman bid to acquire the company.
Official sources say the ministry had received complaints regarding mismanagement and referred the matter to the director general for investigation.
If the government feels there is mismanagement in a company, it can take it over. This was done in the case of Unitech and the National Spot Exchange.
Fortis did not respond to a query in this regard till the time of going to press.
The actions of the directors who have stepped down have come under investors' scrutiny, leading to the meeting on Tuesday. One of the actions is the decision to select the Hero Enterprise-Burman bid for Fortis Healthcare.
“The fact that three directors have stepped down means that they did not have the confidence to face the vote of the shareholders,” a top executive of the firm said.
Shares of Fortis Healthcare were up 2.73 per cent at Rs 148.50 on the BSE.
Upon the request of two large institutional shareholders, Eastbridge Capital and Jupiter India Fund, the EGM has been called to overhaul the board.
A top executive of a firm that has put in its bid for Fortis Healthcare said: “The board needs to be strengthened. It can then look afresh at all the binding offers in the way YES Bank has suggested.”
“The board now has the opportunity to take a re-look at the bids and undertake the process in a well-defined and time-bound manner,” said Amit Tandon, managing director, Institutional Investor Advisory Services.
A company law expert said a decision taken by the board would not automatically get overruled just because the board members had resigned but new members could do a review.
Earlier this month, the Fortis board chose the Hero Enterprise-Burman offer of Rs 18 billion, to be invested in two tranches, over the competing bids of the TPG-Manipal Hospitals combine, IHH Healthcare, and Radiant Lifecare.
Shareholders criticised the Hero Enterprise-Burman offer because it supposedly did not offer them an exit route and there was no proposal for an open offer, said Arun Kejriwal, director at Kris Capital.
Three days after the board chose the Hero Enterprise-Burman offer, the TPG-Manipal Hospitals combine came up with a revised bid, raising its earlier offer by 12.5 per cent. In its latest offer, the combine proposed a preferential allotment of Rs 180 per share.
Fortis has been facing trouble for over 18 months, with the Singh brothers, the promoters, caught in a case filed by Japanese drugmaker Daiichi Sankyo and then the auditor not willing to sign the company’s balance sheet.
Recently, Fortis Healthcare CEO Bhavdeep Singh said he had not been able to focus on the business over the past 12-18 months.